Fed's Bowman: not ready to cut rates until clearer inflation is ebbing

FILE PHOTO: U.S. Federal Reserve Governor Michelle Bowman gives her first public remarks as a Fed policymaker at an American Bankers Association conference in San Diego, California, U.S., February 11 2019. REUTERS/Ann Saphir/File Photo

By Michael S. Derby

(Reuters) - U.S. Federal Reserve Governor Michelle Bowman reiterated on Thursday that she is still not ready to support a central bank rate cut with inflation pressures still elevated.

The Fed’s current interest rate stance remains “restrictive” and price pressures should cool even with monetary policy held at current levels, Bowman said in the text of a speech prepared for delivery before the Idaho, Nevada, Oregon, and Washington Bankers Association 2024 Annual Convention, held in Stevenson, Washington.

“Should the incoming data indicate that inflation is moving sustainably toward our 2% goal, it will eventually become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive,” Bowman said, adding “we are still not yet at the point where it is appropriate to lower the policy rate, and I continue to see a number of upside risks to inflation.”

Bowman added, “I remain willing to raise the target range for the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed.”

The Fed governor’s remarks were largely in line with recent comments she has made on the economic and policy outlook. She spoke as Fed officials are seeking evidence inflation pressures are steadily retreating back to the 2% target. Officials have currently penciled in one quarter percentage point cut for this year, and many in markets think it will happen at the September Federal Open Market Committee meeting.

In remarks earlier this week Bowman said she sees no cut this year and the possibility of easing next year.

In her speech on Thursday, Bowman said overall activity is strong this year but had moderated, amid a stalling in progress on inflation. She noted an easing in financial conditions was creating challenges for the future direction of prices.

“There is also the risk that the loosening in financial conditions since late last year, reflecting considerable gains in equity valuations, and additional fiscal stimulus could add momentum to demand, stalling any further progress or even causing inflation to reaccelerate,” she said.

Bowman also said in her remarks that a decline in the number of banks in the U.S. was a problem. At the same time, there aren’t enough new banks being created.

“The absence of de novo bank formation over the long run will create a void in the banking system, a void that could contribute to a decline in the availability of reliable and fairly priced credit, the absence of financial services in underserved markets, and the continued shift of banking activities outside the banking system,” she said.

(Reporting by Michael S. Derby; Editing by Andrea Ricci)